Canada the good?

For the third year in a row, Maclean’s has partnered with Jantzi-Sustainalytics, a global leader in sustainability analysis, to present the Top 50 Socially Responsible Corporations. The companies’ efforts vary—Merck has donated 1.3 million doses of its rotavirus vaccine to babies in Nicaragua, for instance, and Sony Corp. has diverted 205,000 kg of old electronics from landfills since 2008. But they all provide lessons (starting on page 46) on how to be better corporate citizens—lessons that, based on how Canadian companies generally compare to others on this measure, are worth taking note of.

Canadian oil sands companies were caught blinking in the international spotlight when world leaders met at the 2009 climate change summit in Copenhagen. In the run-up to the meetings, foreign activists and newspaper columnists dubbed the industry “dirty” and hell-bent on transforming a large swath of northern Alberta’s boreal forest into a barren moonscape. Ottawa, meanwhile, was accused of being one of the biggest stumbling blocks to global efforts to reduce greenhouse gas emissions.

Getting branded as the world’s environmental villain was an unfamiliar and uncomfortable experience for Canadians, many of whom were eager to dismiss foreign criticisms as the rantings of a handful of fringe groups. But anti-oil-sands sentiment has only grown louder in Europe over the past few years and, increasingly, it’s being echoed in some quarters of the United States, the biggest importer of our oil sands crude. Granted, resource extraction has never been a warm and fuzzy business, but many Canadians have been left wondering whether the industry could do a better job insulating itself from such criticism.

And oil sands companies aren’t the only Canadian firms with a potential reputation problem. With a few exceptions, Canadian companies have been relatively slow to embrace the sorts of activities and initiatives generally associated with being good corporate citizens. A ranking of G7 countries performed for Maclean’s by Jantzi-Sustainalytics shows Canada near the bottom of the list when it comes to large publicly traded companies’ performances on corporate social responsibility (CSR) measures that fall under the umbrellas of environmental, social and governance criteria. Germany, Italy, France and the United Kingdom all scored well ahead of Canada. The one bright spot was that Canada scored ahead of the U.S., where corporate culture has historically been defined by short-term profit-maximization above all else.

“I think many Canadian companies are just comfortably coasting along,” says Heather Lang, Jantzi-Sustainalytics’s director of research for North America. While she cautions that there are some structural reasons for Canada’s poor performance—nearly 50 per cent of the 100 large-cap Canadian companies surveyed do business in the environmentally unfriendly resource sector, for example—she says there’s no question that Canada lags behind Europe when it comes to adopting CSR measures. The risk, says Lang, is that Canadian companies will be caught flat-footed by shifting public opinion and regulatory oversight on issues like climate change and ethical treatment of foreign workers, putting them at a potential competitive disadvantage. The stakes are particularly high for firms that deal directly with consumers, who are increasingly inclined to base purchasing decisions on a company’s values and corporate reputation, in addition to price and product quality. “This is a bit of a wake-up call for Canada,” says Lang.

That’s not to say all Canadian companies are dragging their feet. Even in the oil and gas sector, firms such as Suncor Energy Inc., Nexen Inc., and Talisman Energy Inc. made Jantzi-Sustainalytics’s Top 50 list this year. Talisman, which was dogged for years by its involvement in war-torn Sudan, now has a policy to “meet or exceed industry standards for community engagement” in the areas in which it operates, and conducted extensive assessments of internal conflicts and narcotics-related violence before entering Colombia. Nexen, meanwhile, helps pay for Canadian post-secondary degrees for Yemeni students and Suncor has set sustainability targets for all employees, from executives to operators.

But for every Canadian firm that has embraced CSR, there remain dozens that have so far shown little interest. The problem is particularly acute among privately held companies, which aren’t subjected to pressure from shareholders and are less regulated than their publicly held counterparts. A recent survey by consulting firm PricewaterhouseCoopers found that only about half of Canadian private companies have a CSR plan in place, with 53 per cent of respondents describing such plans as “nice to have,” but not a priority. The concern is that a handful of high-profile converts won’t be enough to prevent the entire resource extraction sector, a major driver of Canada’s economy, from being cast in an unfavourable light.

So why have Canadian companies been so slow to get on board? Dirk Matten is a professor of strategy and the Hewlett-Packard chair in corporate social responsibility at York University’s Schulich School of Business. He argues that, thanks to our well-established social welfare system, many Canadian companies haven’t seen a pressing need to become engaged in broader society. As an example, he pointed to Starbucks, one of the few U.S. companies that receives high marks for its CSR efforts. The coffee giant’s website lists abundant information about its suppliers and what the company does for its employees. “It’s pretty impressive,” he says.

As for why Europe, with its many welfare states, is so far ahead of the curve, Matten suggests the answer lies in the continent’s densely populated geography. When citizens live elbow to elbow with large corporations, there’s far more public pressure on firms to act like responsible members of the community—particularly on issues like the environment, which affect everyone. In addition to leading the way on climate change, nearly two-thirds of EU companies publish regular CSR reports and lead in supply chain management and employee relations. By contrast, Canada’s relatively sparse population means many businesses face far less direct scrutiny. Resource companies tend to operate in remote regions, if not foreign countries, and the non-governmental organizations that rally public opinion in Europe generally have a smaller presence in Canada. At the same time, the business world in Canada tends to be small and more insular, reinforcing long-held beliefs and familiar ways of doing things. “It’s more of a conventional approach—the deals you do over lunch as opposed to the big [NGO] campaigns,” says Matten. “In continental Europe, I would say 95 per cent of companies do this stuff because they have to.”

The U.S. is a different story. In general, support for sustainability issues in Washington has been relatively lacking. For example, the Clean Energy and Security Act, which would have established an emissions trading plan similar to the scheme adopted in the EU, was approved by the House of Representatives in June 2009, but ultimately died in the Senate. In the absence of government pressure, there has been relatively little incentive for U.S. companies to get involved in CSR in a big way. Canadian companies generally lead their U.S. peers when it comes to issues surrounding employee relations and the environment, says Lang.

The main exception is those U.S. firms that have previously found themselves at the centre of major controversies. In 2004, clothing retailer Gap Inc. severed ties with 70 overseas factories following criticism of labour abuses, and began filing social responsibility reports. Nike Inc., too, was once vilified for running overseas “sweatshops” but is now considered a global leader when it comes to the health and safety of overseas workers. At a bare minimum, there’s a public relations benefit to companies that are viewed as socially responsible. Both Gap and Nike wear their CSR achievements as badges of honour in an attempt to win over consumers.

Lang says one of the biggest surprises was the relative lack of Canadian-owned companies in the Top 50 that operated in consumer industries like retail or food staples—businesses where CSR initiatives can quickly pay off by winning over sustainability-minded consumers. “It’s a missed opportunity,” says Lang. “Some Canadian companies are looking at these issues, but aren’t communicating it very deeply. What’s happening is that consumers are voting with their feet and shopping in other stores, supporting other brands that they feel are really doing a good job.” On the other hand, she cautions that firms need to be careful they don’t oversell their modest sustainability credentials because consumers are wary of anything that smacks of so-called “green-washing.”

For Canada, though, the biggest challenge remains finding a way to improve the CSR performance of our vast resource sector. Dayna Linley, an energy analyst with Jantzi-Sustainalytics, says that, in some cases, the industry simply isn’t doing a good job of sharing some of their laudable efforts with the wider public. “One thing that Canadian oil sands companies do really well is communicate with their local stakeholders,” she says, referring to the communities and First Nations groups that live near their operations. That said, Linley stresses that it will take a much broader and more concerted CSR effort by resource companies to really move the needle on public opinion. “What we’re seeing in the oil sector is that, even when only a couple of companies aren’t addressing this, they are impacting the whole industry.” Not to mention Canada’s reputation around the world.